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Current Affairs

Billionaire Minimum Income Tax

Date: 31 March 2022 Tags: Miscellaneous

Issue

President Joe Biden has announced Billionaire Minimum Income Tax in the 2023 budget proposal.

 

Background

The new tax is a part of the administrations’ effort to reduce the federal deficit over the next decade and fund new spending.

 

Details

The tax would be applicable to one-hundredth of 1% of Americans and can be used to raise $360 billion that can be used to lower costs for families and cut the deficit.

 

Working

  • According to the proposal, households worth more than $100 million pay at least 20% in taxes on both income and unrealized gains.

  • The true income of wealthy individuals is seldom taxed as they are held without any transactions and passed over generations.

  • Wealthy households can spread some payments on unrealized gains over nine years, and then for five years on new income going forward, according to the proposal.

  • Stretching income over multiple years is done to handle yearly variations in investment income, while still ensuring that the wealthiest pay a minimum tax rate of 20%.

 

Impacted individuals

  • The targets are 700 billionaires who increased their wealth in 2021 by $1 trillion. Till now, they have only paid 8% of their income and unrealized gains in taxes.

  • Well known billionaires like Elon Musk, Bill Gates, Jeff Bezos, Warren Buffet and Michael Bloomberg would come under the proposed law.

 

Money raised

It is expected to raise $361 billion over 10 years. There are also plans to raise $1.4 trillion worth of revenue by increasing corporate taxes.

 

Wealth tax

It is a form of tax imposed on the market value of assets owned by an individual. The assets include cash, bank deposits, real estate, assets in insurance and pension plans, ownership of businesses, financial securities etc.

 

Issues

  • Wealth tax will have negative effect on investments. It will discourage new investments in a country.

  • There are proponents who encourage government to tax more from rich billionaires in order to redistribute wealth.